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Reliance Jio unlikely to disrupt home broadband space, say analysts

May not affect Airtel's business significantly in terms of customer churn

Goldman Sachs noted that free TV may not be a big draw for its target consumer base
Goldman Sachs noted that free TV may not be a big draw for its target consumer base
Romita Majumdar Mumbai
3 min read Last Updated : Sep 07 2019 | 1:23 AM IST
The entry of Reliance Jio into the home broadband segment is unlikely to cause significant disruption, say analysts. This is in contrast to the bloodbath in the telecom sector in FY17 triggered by Jio’s entry.

It is also not expected to affect Airtel’s home broadband (which is the largest private stakeholder) business significantly in terms of customer churn.  However, Airtel’s home broadband average revenue per user (ARPU) is expected to dip 10-12 per cent to Rs 742, by FY21.

Jio’s free TV offer, however, may not be enough to draw consumers, the analysts said, after the official launch of JioFiber.

JioFiber is targeting 20 million homes and 16 million enterprises over the next 12 months. Airtel has 2.3 million fixed broadband subscribers and 16 million DTH subscribers.

Airtel’s reported ARPU for home broadband in the June quarter was Rs 825 per month. The home broadband segment contributed to around 4 per cent of the company’s Ebitda in FY19.

“Airtel’s (home broadband) ARPU is down 27 per cent in the last two years, and we expect another 10 per cent decline over the next 12 months. 

“But with Airtel upgrading its customers to higher bandwidth offerings, we see low possibility of churn,” wrote Manish Adukia, analyst at Goldman Sachs.

The brokerage, however, expects Jio to become a sizeable player in the home broadband segment and estimates 8 million subscribers by FY23, compared to Airtel’s base of (estimated) 3 million. The home broadband services market in India is very different from the mobile wireless ecosystem, with very little penetration. Analyst estimates put the base at less than 20 million, of which at least 50 per cent is serviced by PSU operators BSNL and MTNL. 

Fiber penetration in India is, itself, a dismal 25 per cent, while only 7 per cent of home broadband connections are on fiber.

“Given the current fixed broadband subscriber base of 18 million (Jio’s target is 20 million) implies doubling of the market. 

“We expect, though, that the roll-out will be gradual, given that pricing is not as disruptive as it was in mobile,” noted Piyush Nahar, analyst at Jefferies.

Goldman Sachs also noted that free TV may not be a big draw for Jio’s target consumer base, given that a huge chunk of the 20 million homes targeted are likely to already own a compatible television set, and “customers may not be willing to commit a large upfront (minimum Rs 35,000) amount for home broadband.”

Further, Indian customers prefer to go for larger 32-43 inch TV screens, compared to the 24-inch offered for Jio’s gold plans. 

On similar lines, analysts said the long-term plans are cost-effective but require upfront payment, which would mean faster capex recovery for the service provider.

More importantly, what most analysts are confident about is that the lack of aggressiveness in pricing and relative stickiness of the market will prevent a repetition of the bloodbath that the wireless market suffered.

Topics :Reliance Jiobroadband

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